UK Businesses have been warned that they face long term pain as they focus on battling the short term challenges of Brexit and the COVID pandemic.
Insurers Aviva have launched the first of what will become its annual Risk Insights Report, created with YouGov, and involved canvassing the opinions of 1,260 business leaders from organisations of all sizes, industries and locations across the UK.
“The report identifies the top ten risk concerns for the businesses. COVID-19, Brexit, business and supply chain interruption were the top three concerns. However, climate change ranked as the number 13 risk faced by businesses, with just 11% identifying it and extreme weather events as one of their top five concerns.
The report explained: “Given the challenges facing businesses today – including COVID-19, Brexit, climate change and the threat of a global recession – the time has never been better to examine attitudes towards risk. No one could have predicted the incredible challenges businesses have faced in 2020. Businesses are in the middle of the biggest risk mitigation period in living memory, and this report examines how they are coping with and responding to it.”
Nick Major Aviva’s Interim Managing Director for Commercial Insurance explained: “Whilst the vaccination roll-out programme provides hope in addressing the public health concerns at the forefront of all leaders’ minds, businesses must build on the agility shown over the last 12 months to prepare for and react to the unexpected.
“Unsurprisingly, focus on traditional risks, such as regulation and climate change, has been overshadowed by addressing the immediate disruption caused by COVID-19, triggering the acceleration of digital adoption, remote working and supply chain reassessments all in a single year.
“Preparing for the unexpected in 2021 and beyond demands a considered and holistic approach. Traditional risks are merging to create some key themes, and insurers play a significant role in assisting businesses to build resilience and provide confidence through the provision of clear and affordable protection alongside the right expertise and support.”
Resilient to business risks
The report added while 89% of businesses believe they are resilient to business risks, less than half (47%) of all businesses said they regularly undertake health and safety risk assessments, fire risk assessments (33%) or business continuity planning (28%). This is especially concerning, given that some assessments are required by law (e.g. health and safety, fire). Small businesses in particular are struggling to prepare: 42% of small businesses said they have not carried out any of the main risk management activities in the past 12 months.
On the growing use of technology Aviva added: “All businesses have shown agility and resilience this year. Just under half (48%) of the business leaders we spoke to have increased their digital adoption of technology. However, larger businesses have invested more resources into greater workforce training (7% small, 21% mid-market, 23% corporate), automation (6% small, 22% mid-market, 22% corporate) and supply chain reviews (8% small, 23% mid-market, 32% corporate). Over half (54%) of business leaders from small businesses reported that they’ve made no change in their use of technology through the pandemic, in contrast to less than a quarter (23%) from mid-market businesses and 12% from corporates.
“This split between business sizes presents, potentially, a risk to the economy of an uneven recovery.”
ON the growing threat from emerging risks the report was blunt.
“As businesses look to review supply chains there is growing demand for additional triggers to both safeguard a business’s balance sheet and also reflect the changes in its business models and operations,” it stated. “The recent protests in France, Chile, Hong Kong and the USA have highlighted the increasing political risks facing businesses supply chains.
“This could mean physical damage preventing a business from operating, indirect damage to key infrastructure in the vicinity or loss of attraction. In the UK, businesses need to review and monitor the possibility of further restrictions as a result of future lockdowns against the backdrop of rising unemployment.
“Climate change is also a critical consideration as the severity and frequency of global weather events increase. Notable weather events include storm Filomena where significant amounts of snow disrupted daily operations in Spain and Europe, the number of hurricanes recorded in the Atlantic and wildfires seen in California.
“These events not only impact the availability of raw materials, equipment and machinery but have knock-on effects that can disrupt entire supply chains. The changing regulatory environment as a result of climate change is also a consideration for business leaders. Whilst this will bring opportunities for businesses to adapt and evolve their businesses, one indirect impact of climate change is that it takes longer to reinstate property to build back in a greener, more sustainable manner.”
Pete Holmes Aviva’s Technical Specialist for Business Interruption, Continuity Management, Supply Chain and Cyber warned firms needed to understand the threat they faced.
“Supply chain management is a much larger and more complex task than many businesses realise,” he warned. “We recommend regularly reviewing your supply chain and assessing it in its entirety to spot – and mitigate – any weak points.
“For SMEs, who have smaller teams and budgets, this may seem like an over-investment of resources, but this is a complicated risk that requires proactive measures as much as reactive – and too often, it’s under-realised.”
On COVID-19 the report said operating in the midst of a global pandemic has presented businesses with an ongoing series of challenges of a breadth and depth previously unknown. Looking to the future, 69% of businesses said the long-term impact of Covid-19 on their business will be negative. For 39% of businesses, lower growth is expected as a result. So it is not surprising that businesses said they are more “worried” about the impact of Covid-19 than any other risk in the research.
On Brexit is said business leaders were more than twice as likely to say that the impact of Brexit on their business has been negative rather than positive. This outlook reflects the risks businesses face from legislative and regulatory changes, which was the second largest risk business leaders said they are exposed to, after public health events.
“Businesses say they face a wide range of risks during a potentially bumpy period as the UK seeks to develop new trading relationships outside the EU,” it added. “For example, supply chains that previously relied on the free movement of goods and services across the EU have had to be reviewed and revised. Aviva’s research shows that three-in-ten (31%) businesses said they were actively looking to source from local or British suppliers to help ensure greater transparency and control, especially as consumer attention on a business’ supply chain has heightened. One-in-six (17%) business leaders identified a shortage of skilled workers as a top-five risk for their business, reflecting uncertainty in the supply of labour post-Brexit.”
The Report cautioned the fact that only 11% of businesses ranked climate change and extreme weather events as one of their top five risks, highlighted a need for more to be done to stress the threat it poses. While current risks facing British businesses are pressing, they should not be the only risk management and prevention considerations taken by businesses.
“More than one-in-three (36%) businesses said they were not exposed to any risks as a result of climate change,” it warned. “Businesses cannot ignore the very real risks associated with climate change and climate-related extreme weather events. Those businesses that did recognise climate-related risks said they are most exposed to economic and market risks (29%) as a result of the climate emergency, followed by regulatory and legal changes (24%) and operational disruption (21%).”
Cyber remains a major concern according to the report. In response to the challenges of operating in the midst of a pandemic, nearly half (48%) of businesses said they increased their digital adoption of technology. They did so largely to reduce their cost base (28%) and diversify their operations (27%). However, the migration online also poses a significant and growing risk, with more than one-in-four businesses (27%) – and one-in-three large corporates (36%) – listing the risk of cyber-attacks as a top risk faced by their business.
The reported said the impact of a cyber-attack can be crippling: 44% of businesses said they would face operational disruption in the event of a cyber-attack; 42% said loss of data; and one-in-three said loss of customer confidence (33%), financial impact (33%) and loss of reputation (32%) would all stem from a cyber-attack. However, 20% of business leaders said they did not think they were exposed to any Cyber risks, highlighting the need for greater awareness of cyber risks.
“We see mixed levels of business preparedness against cyber risks with 20% of business leaders surveyed indicating that they did not think they were exposed to any cyber risks,” explained Neil Arklie, Head of Cyber. “Most businesses and employees will know what to do if they discover a fire, but would they know what to do if their network was down due to a ransomware attack? A rapid response to a breach is essential in recovering quickly and requires a co-ordinated approach, often needing a range of experts.
“Cyber insurance should be a key part of a company’s cyber security strategy. As well as protecting against the financial impact of cyber threats insurance should provide access to a range of experts in order to reduce the damaging impact of the event and help the business bounce back. It may not be enough to just fix a security breach and get back to business as usual; businesses may wish to take advantage of specialist experts to help them learn from an incident so that they can become stronger and better prepared in future.”